HR Pulse

Retrenching employees on fixed-term contracts is now a minefield

During retrenchment exercises it has become a fairly common practice - among employers - to terminate temporary, fixed-term contracts to reduce the number of permanent employees to be retrenched. The work of those employees on fixed-term contracts is then reallocated to permanent employees. However, to ensure that your retrenchments are fair, there are a number of factors you need to take into account.

There are a variety of legitimate reasons contributing to the need for retrenchments. However, these factors won't automatically render a retrenchment fair.

The courts have traditionally taken into account four key issues when deciding if a retrenchment is fair:

1. Was there a sufficient operational reason for the retrenchment or was the retrenchment a sham?
2. Was a fair condition used for choosing the employees to be dismissed or should other employees have been retrenched instead?
3. Before deciding to retrench, did the employer properly consult with the employees or trade union on, for example, measures to avoid or reduce the number of retrenchments?
4. Did the employer give the employees or union all the information relevant to the retrenchment and to the consulting process?

However, a fifth factor has recently been highlighted.

In the case of Buthelezi vs Municipal Demarcation Board (2005, 2 BLLR 115) the Labour Appeal Court found that retrenching an employee – before the expiry of his/her fixed-term contract – is unfair. In this case:

• Mr Buthelezi had a five-year, fixed-term contract with the Demarcation Board but was retrenched one year after it began.
• Before he was retrenched, Buthelezi was invited to apply for an alternative post but was unsuccessful.
• The Labour Appeal Court found that the employer didn't have the right to terminate the fixed-term contract before its natural expiry date.

This decision is most surprising because when the job of a fixed-term employee genuinely becomes redundant, what is the employer required to do? Did the court expect the employer to keep the employee on its books and, despite the absence of work, continue to pay the employee for four years until the contract expired?

Labour law gives an employer the right to retrench for good reason. The court's startling decision means that:

• Regarding retrenchment, a temporary employee with a fixed-term contract has stronger rights that a permanent employee,
• The practice of terminating the contracts of temporary employees in a retrenchment exercise, to save permanent jobs, needs to be reviewed urgently,
• The terms and wording of fixed-term contracts need to be radically revised,
• No employer should enter into, or terminate, a fixed-term contract before consulting with a labour law expert.

Ivan Israelstam is the Chief Executive Officer of Labour Law Management Consulting. He is known as a leading practitioner in labour law and pragmatic labour relations management with many years experience in corporate human resources management. He has an honours degree from The University of the Witwatersrand and an IPM diploma in Personnel Management and in Training. Contact Ivan: This e-mail address is being protected from spambots. You need JavaScript enabled to view it. .